12 ms·

Selling My Bootstrapped SaaS Business

311 points by AlikhanPeleg 9y ago

joosters 9y ago
...the cash, from selling the business has built momentum for other projects like [...] angel investing, I just knew that would be in there. Why do so many tech people seem to think that VC investment is what they want to be doing once they have spare cash? This isn't a personal critique of the OP, but it just seems so very common in general. I don't understand it.
- asmithmd1 9y ago
  How else would you invest your money? Index funds in a stock market whose price is going hockey stick? With banks out of the business of loaning people money there are genuine opportunities out there where people can put money to work. I imagine he is not going to be gambling on ICOs but investing in profitable companies.
  - charlesdm 9y ago
    10% a year on a million is still (way) better than throwing 4x $25k at a random startup through angel investing. Hell, with current interest rates, you might as well use some portfolio margin and borrow an extra million.
    - joosters 9y ago
      Yeah, exactly. Profitable VC investment is often described as a numbers game, where you need to make maybe hundreds of investments to smooth out the inevitable numerous failures. 4x $250k angel investments is basically a long shot gamble. On the flip side, if you do spread your investments and invest in lots of companies, you as an individual aren't going to be able to have enough time to help or advise any one startup in a meaningful way.
      - alien_at_work 9y ago
        How often do angels get screwed when VC's come in? Genuinly asking, not trying to make some point.
        joosters 9y ago
        Sorry, I'm talking about VCs/angels as the same thing, and not trying to say anything about the investment time/stage/size/whatever.
    - asmithmd1 9y ago
      Are you saying you can expect 10%/year with your money in the stock market? No stockbroker will tell you that, it is more like 6%-8% over a 10 year time frame. And you have to have the courage to watch your balance drop 50% over a 1-2 year time span and still stay in.
      - alien_at_work 9y ago
        > it is more like 6%-8% over a 10 year time frame Uh, it's 6-8% compounded over what ever time frame. Which is actually still quite good and probably handily beats most angel investment returns.
      - erikbye 9y ago
        S&P 500 ETF Trust gained 63.42%, last 10 years. Vanguard 500 Index Fund, 130.56% since 2010. And neither look like hockey sticks.
      - icedchai 9y ago
        My own accounts have earned over 11.5%/year, for the past 10 years. This was through the financial crisis, where I did see huge drops like you describe, held, and continued to invest. Longer term 6 to 8% feels about right though.
      - charlesdm 9y ago
        If you put some time into it and learn how to properly invest, yes. If you made a million today, you probably want to just keep it in an account and wait until a 20%+ correction happens before buying in, though -- it's been quite while since the last significant drop.
        joosters 9y ago
        Trying to time the market? Good luck with that.
        vinceguidry 9y ago
        All active investment, unless you're a market maker, is market timing.
  - sidlls 9y ago
    I'd invest in equities, commercial real estate, and residential real estate development. Most tech companies looking for angel investment or VC money are just other versions of information selling (that is, information about people) or social interaction or both. They aren't worth "giving back" to, from either a tech perspective (from the perspective that they'll possibly advance technology) or from an investment perspective (they'll almost certainly perform worse than even conservative investment).
- growt 9y ago
  I think it's because before the sale you were on the other side of the table dreaming about how easy the VC life is (just spending some cash and letting you do the actual work).
- soneca 9y ago
  I believe this a great feature that create "tech hubs". It is the "give back to the community" of tech entrepreneurs. It is not just a financial decision.
  - joosters 9y ago
    But there's plenty of ways to 'give back to the community' without being the one waving the chequebook. In particular, if you've got the spare time to work on other projects, you can do plenty to help out.
    - duggan 9y ago
      Some folks have more spare money than spare time. If you've got the spare time, cool, if you've got the spare money, cool. What's the issue here?
      - joosters 9y ago
        I've no issue with angel investing. It does start to irk me when people talk about it as 'giving back to the community' though. That used to be called charity, not investment.
        duggan 9y ago
        Ok I think that's a reasonable position to have. However, giving back to a professional community seems like it would run on a different set of fundamentals to giving back to a social community. Could one not equally apply the argument to non-monetary activities -- giving talks, running events, writing OSS software, etc? That's all stuff that normally falls under the mantle of giving back to the community, yet it often confers resume benefits. What is it that makes it different?
    - erikbye 9y ago
      When you're busy with your new, own projects, time is in short supply. Are you seriously going to complain that people angel invest? It's of great benefit to founders.
- nathan_f77 9y ago
  I think it's just a lot of fun to meet other entrepreneurs, and be involved in what they're building. Definitely more fun than putting your money into some index funds.
- danieltillett 9y ago
  I "invest" in new startups because I want to help the next generation. I put invest in quotation marks because I don't expect to make any money (I will be happy if I break even), but I do want to give back and create the environment that I never had access to. I know others feel the same.
  - KGIII 9y ago
    Some of my investment is to empower people that I like. Some is just to help them over a temporary financial hurdle. Some is more like a gift than an expectation of a financial reward and, honestly, a loss is the expected outcome. I'd also add something to the general topic. I never expected to sell my company and I think that actually helped. I drew a salary and kept my finances distinct from the legal entity that was the company. As it was I was the only owner, there were no investors to please, so profits went into growing and securing the business. Note: I consider sharing the profits with employees to be part of business growth and security. That meant I had complete ownership and a healthy business, without much real debt. This was attractive and it was quite surprising, sort of, when the offer came in. It was only sort of surprising because there had been a few rumors about it. So, I'm of the mind that the mentality drove the process and the process influenced the results. Of course, there is survivorship bias and I'm just a single data point.
    - kdscruggs 9y ago
      Congrats on the sale! Very noble of you, big fan of your approach. Ultimately, my goal is to eventually do the very same (give good people their chance to flourish and create good business). Have you seen any correlation to the "no pressure"/generous aspect of your investments to the success or failure of said investment? My feeling is that the lack of stress attached to the investment may make it easier for the founder to achieve their goals. No anxiety about failure to pay you back = no self fulfilling prophecy. Probably depends on the founder.
      - KGIII 9y ago
        No, but I don't have any frame of reference other than this. I treat every investment as a potential total loss, at least in this area. So, I don't really pressure or tell people what to do. So far, it's barely profitable.
- tylertringas 9y ago
  I use the term "angel investing" pretty loosely here. Not implying picking startups on angelist, but more like small investments in other Micro-SaaS businesses. Still formulating a strategy for investing tbh as it's the first time in my life I've have real captial to deploy, but I feel like I have a better competitive advantage investing in what I know rather than securities
  - joosters 9y ago
    Hey, good luck to you. Again, it's nothing personal, and I don't mean to be insulting your choices, I just find it interesting that VC investment is so popular a choice for moneyed tech workers.
  - troydavis 9y ago
    Whether you have an advantage or disadvantage depends on your goal. If you want a series of potentially-fun lottery tickets in industries and teams you choose, you have an advantage. If you want any return (and I mean any, as in, recovering any capital), you have 3 huge disadvantages: insufficient diversification[1], a lack of dealflow, particularly great deals, and inexperience evaluating and participating in other people’s startups. These are all surmountable, but doing so is an occupation. If you don’t already read Matt Levine, the “Retail Traders” section of https://www.bloomberg.com/view/articles/2017-10-09/retail-voters-and-insider-traders https://www.bloomberg.com/view/articles/2017-10-09/retail-vo... applies to picking a small quantity of individual startups too. The reason to do it is because it’s fun (and you’re comfortable losing all of the principal), not to earn average risk-adjusted returns. [1]: Check out 500 Startups’ presentations and posts on how much diversification is required to expect average returns for the asset class. Here’s one: https://500.co/not-so-simple-math-on-venture-portfolio-size/ https://500.co/not-so-simple-math-on-venture-portfolio-size/
- sparrish 9y ago
  Seems a bit ironic that a successful bootstrapped business owner would want to do angel investing.
  - tylertringas 9y ago
    Appreciating the good discussion here around "angel investing" which I broadly agree with depending on how you define it. Just want to clarify that for me personally, I meant just investing in early-stage businesses in creative ways; not VC, moonshot, whatevers. In the run up to launching many failed businesses prior to Storemapper I accumulated nearly $60k in credit card debt, which functioned more or less like an angel investment from Chase et al. I think there are lots folks who could build a good business but don't have access to even that level of "capital" or don't want to take that kind of risk and might instead look for an "angel" investment. Maybe. Still early in formulating a strategy to be honest. (further reading if you're curious: https://tylertringas.com/debt-free/ https://tylertringas.com/debt-free/)
    - moeamaya 9y ago
      Both ourselves and our fellow bootstrap friends have eerily similar tales of CC debt as our first investors. $30k for a nearly profitable bootstrap founder is rocket fuel.
- mbesto 9y ago
  I am not a financial advisor, but generally speaking you should only be putting 5% of your net worth into high risk investments (i.e. angel investing). Some people have done the opposite (95% of net worth) and gotten extremely lucky on going all in (see Jason Calacanis's book Angel for example). > I don't understand it. I do. Angel investing is a status symbol in tech circles. https://twitter.com/sama/status/623685126849822720 https://twitter.com/sama/status/623685126849822720
- ringaroundthetx 9y ago
  "paying it forward" is part of the silicon valley culture, and as other markets mature they try to adopt that mentality as well. without it, this is one of many aspects that will make it impossible for some hamlet in Bumbaf* Cheapsville to be "the next silicon valley"
  - joosters 9y ago
    I always thought "paying it forward" spoke of acts of charity, not investment (and to those who say that VCs don't expect any reward and invest solely through good spirit, perhaps they should then be making investments that don't give them the potential of huge paydays?) Interestingly though, a read of "paying it forward" in wikipedia - https://en.wikipedia.org/wiki/Pay_it_forward https://en.wikipedia.org/wiki/Pay_it_forward - teaches me that the phrase can also be implemented in the contract law of loans. I never knew!
- Kiro 9y ago
  Because it's fun. You wouldn't want to do it if you had the money?
- briandear 9y ago
  I want to “invest” in the opportunity to sit back, write books and fly airplanes. Angel investing seems like its fraut with constant bombardment from bullshitters. Spending my days looking at decks and listening to the noise of how great someone’s revolutionary idea for delivering fresh made salads to Brooklyn hipsters is would drive me nuts. Perhaps I’d take my money and go build schools in the Himalayas or something. But to each his or her own!
- DeBraid 9y ago
  People go with what they know. Makes sense to skew towards industry where one has acquired lots of information.
hahla 9y ago
I buy bootstrapped businesses. Email in profile. Shoot me a message would be happy to discuss even if its just to chat. I don't ask a lot of questions, have numerous references, and I have been buying for the last 10 years.
- danieltillett 9y ago
  ... and what revenue multiple do you pay?
  - csa 9y ago
    > ... and what revenue multiple do you pay? I'm trying to figure out if you're just being a jerk here, or whether you are genuinely curious about a question with a wide range of acceptable answers. I hope it's the latter. Market rates are typically something between 2x and 5x some sort of revenue or profit measure. That said, the price can go over 5 if there is a big strategic advantage to be had. Conversely, the multiplier can be measured in months if there are some red flags -- bad management, suspect financials (e.g, lots of charge backs, excessive debt, cash flow mismanagement, etc.), suspect marketing activities (e.g., janky backlink profiles), evidence of black hat / gray hat activity, publicity issues, etc. Sometimes folks just want to sell these to get away from them, and they are willing to offer the right price. Is offering a 12 month revenue/profit multiple or lower bad here? I would say potentially no. Also note that some people are motivated to sell for some reason. If you've got cash on hand, they will sell for less. Anyway, whether you intended to or not, this sounded like a snarky reply. Much has been written about markets for small companies, so blithely challenging someone on HN seems inappropriate. On the other hand, if you do know someone who has an unconditional open offer to buy businesses at a specific multiple of revenue, please let me know. I can hook them up with as much as they want. I'm fairly certain that this is not the case, but I think it is prudent for me to ask.
    - danieltillett 9y ago
      No I am asking a genuine question. My experience is all buyers want to pay 1x to 1.5x of the after tax profit after some massive owner salary has been subtracted. From a financial perspective it almost never makes sense to sell unless you have to get out today. If you have a good business that is earning good money then just run it out for cash. At worst take your best employee, give them 10% of the business, and let them run it.
nathan_f77 9y ago
> Purposefully under-optimize > For example, I really do not understand paid search advertising (Google Adwords, Facebook, etc) so I purposefully put almost no effort into it as a customer acquisition channel for Storemapper. This article is awesome and super helpful, but that particular point seems like terrible advice. Surely it would be much better to hire a marketing/adwords contractor, and increase the value of your company by getting more customers. I don't think I would want to purposefully leave any "room for improvement", just to make a startup more attractive to buyers who have some experience with ads and SEO. I'd prefer to do the best job I possibly can, and I'm sure people would be still interested in buying, as long as you have the customers and revenue.
- charlesdm 9y ago
  Maybe he just preferred having a healthy amount of money in the bank, and the multiple was worth it? Having $500k - 1m brings decent peace of mind, even if it was a nice business.
  - imhoguy 9y ago
    Exactly as author mentions the risks and the focus in the article. Future, especially in IT and ecommerce, is unknown and next month some mamoth competitor or smart copycat can step into his market.
- cultvoid 9y ago
  In my experience, hiring a marketing/adwords contractor is the very easiest way to transfer cash out of your business and into somebody else's business, with no discernible value gained. I'm sure there are some hotshot marketing/adwords contractors out there...and unicorns probably exist also.
  - ProblemFactory 9y ago
    The "problem" with SEO and adwords consultants is that the good ones would be working for the most lucrative verticals: insurance, consumer finance, medical lawsuits, etc. If your small SaaS business can afford to hire them, then they aren't worth hiring.
deleted 9y ago
[deleted]
tylertringas 9y ago
Hi folks. I'm the OP here. Hit me up if you have any questions.
- tarr11 9y ago
  Thank you for sharing this. Can you answer how much you sold it for, and what your SDI actually was at the time of sale?
  - tylertringas 9y ago
    Sorry I can't, per the terms of the deal. The buyer actually made a very good argument for why. Essentially there is so little data out there that if I posted some rough deal terms it would dominate all future discussions they had "but you paid X for Storemapper and we're at least as Y" but they still wouldn't have the full context of the transaction. So that single data point would be both misleading and unhelpful for future acquisition discussions, which I think is pretty reasonable.
- zinxq 9y ago
  Can you give an idea of the multiples of X (i.e. revenue, Ebitda, etc) that you did consider? You mentioned 6x(monthly-revenue) was bad. But can you discuss the spectrum of what looked good/interesting? (not asking $$$ .. just multiples that were presented)
  - tylertringas 9y ago
    Can't talk about my deal (see below). At the time I started discussions (early 2017) I had SaaS brokers tell me the "market rate" for SaaS was about 3-3.5x annual SDE (see post for discussion of what SDE is).
    - areskib 9y ago
      Thanks, any brokers you can recommend?
bryanph_ 9y ago
Shows how out of touch I am with the corporate world. I can't believe people pay monthly for this.
- tylertringas 9y ago
  I know right. Big thanks to patio11 for convincing me (via blog posts and tweets) that, yes, many businesses will pay quite a bit more than you think for things like a store locator
  - phlowbieuq 9y ago
    Is it just me, or is patio11 the most widely helpful and valuable person on the entire internet? Can hardly make it through a long HN thread without finding some reference to "patio11 wrote a great post on this topic that helped me immensely"
  - patio11 9y ago
    Thanks! That made my day. (I would have liked it regardless of the context but particularly nice to hear in the context of helping a business to a materially successful outcome.)
    - webbie917 9y ago
      It's time you wrote a book (aka package your popular blog posts into an ebook) Patrick and made people pay $$ for your advice :-)
- tobltobs 9y ago
  What would be the alternative if you can't implement it yourself? Pay a developer a hefty one time sum? And then probably all few years another developer again to update it? Thereby getting a product which isn't as feature rich as the Saas version? And probably increase the required administration effort for your website hosting. Doesn't sound like a good alternative, especially if you are an startup which might be not around next year anymore.
- 9y ago
deleted 9y ago
[deleted]
matrix 9y ago
Excellent and very informative post. I'd love to see the things SureSwift needed for due diligence and their hand-over list - it would be a good checklist of things you need to have squared away to ensure a smooth transaction.
top256 9y ago
imho this article is a good illustration of how business get bought and not sold. The business has to be able to live on its own and be interesting to be bought. But that means you have less reason to sell
- webbie917 9y ago
  Whew... I can think of a long list of reasons to sell a business. Many sell simply because of life events - wanting to spend more time with family, travel, buy a new house, deal with personal health. Running a small business is a 24/7/365 job and you can't just take a month off because you have got a honeymoon or a newborn in the plans. Accounting (consult your own accountant please0: when you make salary/profit from your small biz you get taxed at ordinary tax rate (up to 40% in the US) where is when you sell biz as assets you may be taxed at capital gain tax rate (0%-20%) which is a financial advantage - like you get paid 3-4 years ahead. Again, consult a professional on this. You could have other ideas or projects you want to work on, but unable to because your business is your 100% priority and has been for too long. You might not want to deal with hiring a team because that's the stage your business is at - too big for you to handle on your own or you don't want to work 60-hour weeks anymore. I could just go on and on, but a combo of 2-3 of these will certainly make the thought of selling quite appealing to many.
hyperpallium 9y ago
I wanted to keep my first business as a life-style business, to fund other ventures, because the income is financially a much better deal than a sale... but also found that it just takes too much to run miltiple ventures (Elon Musk notwithstanding). Really liked the "see an opportunity", of the business being worth more owned by them - the sale creates value in the world. Really, it's how a sale of anything, product/service, should be. Unfortunately, getting a business into a saleable state, and getting a sale actually done, seem about as much work as creating a profitable (but not self-running) business in the first place. Conceptually analogous to Brooks' program vs. product. > In a strategic acquisition, businesses can be purchased Typo/something missing after that?
ymow 9y ago
ㄚ啊呀呀呀啊艾呀呀呀呀·7唉啊啊啊啊啊愛阿雜玩偶愛啊L唉啊L歐啊歐啊7偶恩愛阿歐恩也歐恩唉啊因為歐恩澤L唉啊歐恩愛阿雜阿歐啊阿L9唉啊偶有欸欸誒eds喔以LKkOL喔餓啊鞥奧阿要唉呀&歐唉啊7欸阿也…
ymow 9y ago
請ㄚ
scoot 9y ago
I'm kinda wowed that something so rudimentary (the map doesn't even have clustering FFS!) can generate a "life changing" income. Developed during a single flight? It shows. So the real question is, why the $$$$$ valuation?!

311 points by AlikhanPeleg 9y ago

...the cash, from selling the business has built momentum for other projects like [...] angel investing, I just knew that would be in there. Why do so many tech people seem to think that VC investment is what they want to be doing once they have spare cash? This isn't a personal critique of the OP, but it just seems so very common in general. I don't understand it.

asmithmd1 9y ago
How else would you invest your money? Index funds in a stock market whose price is going hockey stick? With banks out of the business of loaning people money there are genuine opportunities out there where people can put money to work. I imagine he is not going to be gambling on ICOs but investing in profitable companies.
- charlesdm 9y ago
  10% a year on a million is still (way) better than throwing 4x $25k at a random startup through angel investing. Hell, with current interest rates, you might as well use some portfolio margin and borrow an extra million.
  - joosters 9y ago
    Yeah, exactly. Profitable VC investment is often described as a numbers game, where you need to make maybe hundreds of investments to smooth out the inevitable numerous failures. 4x $250k angel investments is basically a long shot gamble. On the flip side, if you do spread your investments and invest in lots of companies, you as an individual aren't going to be able to have enough time to help or advise any one startup in a meaningful way.
    - alien_at_work 9y ago
      How often do angels get screwed when VC's come in? Genuinly asking, not trying to make some point.
      - joosters 9y ago
        Sorry, I'm talking about VCs/angels as the same thing, and not trying to say anything about the investment time/stage/size/whatever.
  - asmithmd1 9y ago
    Are you saying you can expect 10%/year with your money in the stock market? No stockbroker will tell you that, it is more like 6%-8% over a 10 year time frame. And you have to have the courage to watch your balance drop 50% over a 1-2 year time span and still stay in.
    - alien_at_work 9y ago
      > it is more like 6%-8% over a 10 year time frame Uh, it's 6-8% compounded over what ever time frame. Which is actually still quite good and probably handily beats most angel investment returns.
    - erikbye 9y ago
      S&P 500 ETF Trust gained 63.42%, last 10 years. Vanguard 500 Index Fund, 130.56% since 2010. And neither look like hockey sticks.
    - icedchai 9y ago
      My own accounts have earned over 11.5%/year, for the past 10 years. This was through the financial crisis, where I did see huge drops like you describe, held, and continued to invest. Longer term 6 to 8% feels about right though.
    - charlesdm 9y ago
      If you put some time into it and learn how to properly invest, yes. If you made a million today, you probably want to just keep it in an account and wait until a 20%+ correction happens before buying in, though -- it's been quite while since the last significant drop.
      - joosters 9y ago
        Trying to time the market? Good luck with that.
        vinceguidry 9y ago
        All active investment, unless you're a market maker, is market timing.
- sidlls 9y ago
  I'd invest in equities, commercial real estate, and residential real estate development. Most tech companies looking for angel investment or VC money are just other versions of information selling (that is, information about people) or social interaction or both. They aren't worth "giving back" to, from either a tech perspective (from the perspective that they'll possibly advance technology) or from an investment perspective (they'll almost certainly perform worse than even conservative investment).
growt 9y ago
I think it's because before the sale you were on the other side of the table dreaming about how easy the VC life is (just spending some cash and letting you do the actual work).
soneca 9y ago
I believe this a great feature that create "tech hubs". It is the "give back to the community" of tech entrepreneurs. It is not just a financial decision.
- joosters 9y ago
  But there's plenty of ways to 'give back to the community' without being the one waving the chequebook. In particular, if you've got the spare time to work on other projects, you can do plenty to help out.
  - duggan 9y ago
    Some folks have more spare money than spare time. If you've got the spare time, cool, if you've got the spare money, cool. What's the issue here?
    - joosters 9y ago
      I've no issue with angel investing. It does start to irk me when people talk about it as 'giving back to the community' though. That used to be called charity, not investment.
      - duggan 9y ago
        Ok I think that's a reasonable position to have. However, giving back to a professional community seems like it would run on a different set of fundamentals to giving back to a social community. Could one not equally apply the argument to non-monetary activities -- giving talks, running events, writing OSS software, etc? That's all stuff that normally falls under the mantle of giving back to the community, yet it often confers resume benefits. What is it that makes it different?
  - erikbye 9y ago
    When you're busy with your new, own projects, time is in short supply. Are you seriously going to complain that people angel invest? It's of great benefit to founders.
nathan_f77 9y ago
I think it's just a lot of fun to meet other entrepreneurs, and be involved in what they're building. Definitely more fun than putting your money into some index funds.
danieltillett 9y ago
I "invest" in new startups because I want to help the next generation. I put invest in quotation marks because I don't expect to make any money (I will be happy if I break even), but I do want to give back and create the environment that I never had access to. I know others feel the same.
- KGIII 9y ago
  Some of my investment is to empower people that I like. Some is just to help them over a temporary financial hurdle. Some is more like a gift than an expectation of a financial reward and, honestly, a loss is the expected outcome. I'd also add something to the general topic. I never expected to sell my company and I think that actually helped. I drew a salary and kept my finances distinct from the legal entity that was the company. As it was I was the only owner, there were no investors to please, so profits went into growing and securing the business. Note: I consider sharing the profits with employees to be part of business growth and security. That meant I had complete ownership and a healthy business, without much real debt. This was attractive and it was quite surprising, sort of, when the offer came in. It was only sort of surprising because there had been a few rumors about it. So, I'm of the mind that the mentality drove the process and the process influenced the results. Of course, there is survivorship bias and I'm just a single data point.
  - kdscruggs 9y ago
    Congrats on the sale! Very noble of you, big fan of your approach. Ultimately, my goal is to eventually do the very same (give good people their chance to flourish and create good business). Have you seen any correlation to the "no pressure"/generous aspect of your investments to the success or failure of said investment? My feeling is that the lack of stress attached to the investment may make it easier for the founder to achieve their goals. No anxiety about failure to pay you back = no self fulfilling prophecy. Probably depends on the founder.
    - KGIII 9y ago
      No, but I don't have any frame of reference other than this. I treat every investment as a potential total loss, at least in this area. So, I don't really pressure or tell people what to do. So far, it's barely profitable.
tylertringas 9y ago
I use the term "angel investing" pretty loosely here. Not implying picking startups on angelist, but more like small investments in other Micro-SaaS businesses. Still formulating a strategy for investing tbh as it's the first time in my life I've have real captial to deploy, but I feel like I have a better competitive advantage investing in what I know rather than securities
- joosters 9y ago
  Hey, good luck to you. Again, it's nothing personal, and I don't mean to be insulting your choices, I just find it interesting that VC investment is so popular a choice for moneyed tech workers.
- troydavis 9y ago
  Whether you have an advantage or disadvantage depends on your goal. If you want a series of potentially-fun lottery tickets in industries and teams you choose, you have an advantage. If you want any return (and I mean any, as in, recovering any capital), you have 3 huge disadvantages: insufficient diversification[1], a lack of dealflow, particularly great deals, and inexperience evaluating and participating in other people’s startups. These are all surmountable, but doing so is an occupation. If you don’t already read Matt Levine, the “Retail Traders” section of https://www.bloomberg.com/view/articles/2017-10-09/retail-voters-and-insider-traders https://www.bloomberg.com/view/articles/2017-10-09/retail-vo... applies to picking a small quantity of individual startups too. The reason to do it is because it’s fun (and you’re comfortable losing all of the principal), not to earn average risk-adjusted returns. [1]: Check out 500 Startups’ presentations and posts on how much diversification is required to expect average returns for the asset class. Here’s one: https://500.co/not-so-simple-math-on-venture-portfolio-size/ https://500.co/not-so-simple-math-on-venture-portfolio-size/
sparrish 9y ago
Seems a bit ironic that a successful bootstrapped business owner would want to do angel investing.
- tylertringas 9y ago
  Appreciating the good discussion here around "angel investing" which I broadly agree with depending on how you define it. Just want to clarify that for me personally, I meant just investing in early-stage businesses in creative ways; not VC, moonshot, whatevers. In the run up to launching many failed businesses prior to Storemapper I accumulated nearly $60k in credit card debt, which functioned more or less like an angel investment from Chase et al. I think there are lots folks who could build a good business but don't have access to even that level of "capital" or don't want to take that kind of risk and might instead look for an "angel" investment. Maybe. Still early in formulating a strategy to be honest. (further reading if you're curious: https://tylertringas.com/debt-free/ https://tylertringas.com/debt-free/)
  - moeamaya 9y ago
    Both ourselves and our fellow bootstrap friends have eerily similar tales of CC debt as our first investors. $30k for a nearly profitable bootstrap founder is rocket fuel.
mbesto 9y ago
I am not a financial advisor, but generally speaking you should only be putting 5% of your net worth into high risk investments (i.e. angel investing). Some people have done the opposite (95% of net worth) and gotten extremely lucky on going all in (see Jason Calacanis's book Angel for example). > I don't understand it. I do. Angel investing is a status symbol in tech circles. https://twitter.com/sama/status/623685126849822720 https://twitter.com/sama/status/623685126849822720
ringaroundthetx 9y ago
"paying it forward" is part of the silicon valley culture, and as other markets mature they try to adopt that mentality as well. without it, this is one of many aspects that will make it impossible for some hamlet in Bumbaf* Cheapsville to be "the next silicon valley"
- joosters 9y ago
  I always thought "paying it forward" spoke of acts of charity, not investment (and to those who say that VCs don't expect any reward and invest solely through good spirit, perhaps they should then be making investments that don't give them the potential of huge paydays?) Interestingly though, a read of "paying it forward" in wikipedia - https://en.wikipedia.org/wiki/Pay_it_forward https://en.wikipedia.org/wiki/Pay_it_forward - teaches me that the phrase can also be implemented in the contract law of loans. I never knew!
Kiro 9y ago
Because it's fun. You wouldn't want to do it if you had the money?
briandear 9y ago
I want to “invest” in the opportunity to sit back, write books and fly airplanes. Angel investing seems like its fraut with constant bombardment from bullshitters. Spending my days looking at decks and listening to the noise of how great someone’s revolutionary idea for delivering fresh made salads to Brooklyn hipsters is would drive me nuts. Perhaps I’d take my money and go build schools in the Himalayas or something. But to each his or her own!
DeBraid 9y ago
People go with what they know. Makes sense to skew towards industry where one has acquired lots of information.

hahla 9y ago

I buy bootstrapped businesses. Email in profile. Shoot me a message would be happy to discuss even if its just to chat. I don't ask a lot of questions, have numerous references, and I have been buying for the last 10 years.

danieltillett 9y ago
... and what revenue multiple do you pay?
- csa 9y ago
  > ... and what revenue multiple do you pay? I'm trying to figure out if you're just being a jerk here, or whether you are genuinely curious about a question with a wide range of acceptable answers. I hope it's the latter. Market rates are typically something between 2x and 5x some sort of revenue or profit measure. That said, the price can go over 5 if there is a big strategic advantage to be had. Conversely, the multiplier can be measured in months if there are some red flags -- bad management, suspect financials (e.g, lots of charge backs, excessive debt, cash flow mismanagement, etc.), suspect marketing activities (e.g., janky backlink profiles), evidence of black hat / gray hat activity, publicity issues, etc. Sometimes folks just want to sell these to get away from them, and they are willing to offer the right price. Is offering a 12 month revenue/profit multiple or lower bad here? I would say potentially no. Also note that some people are motivated to sell for some reason. If you've got cash on hand, they will sell for less. Anyway, whether you intended to or not, this sounded like a snarky reply. Much has been written about markets for small companies, so blithely challenging someone on HN seems inappropriate. On the other hand, if you do know someone who has an unconditional open offer to buy businesses at a specific multiple of revenue, please let me know. I can hook them up with as much as they want. I'm fairly certain that this is not the case, but I think it is prudent for me to ask.
  - danieltillett 9y ago
    No I am asking a genuine question. My experience is all buyers want to pay 1x to 1.5x of the after tax profit after some massive owner salary has been subtracted. From a financial perspective it almost never makes sense to sell unless you have to get out today. If you have a good business that is earning good money then just run it out for cash. At worst take your best employee, give them 10% of the business, and let them run it.

nathan_f77 9y ago

> Purposefully under-optimize > For example, I really do not understand paid search advertising (Google Adwords, Facebook, etc) so I purposefully put almost no effort into it as a customer acquisition channel for Storemapper. This article is awesome and super helpful, but that particular point seems like terrible advice. Surely it would be much better to hire a marketing/adwords contractor, and increase the value of your company by getting more customers. I don't think I would want to purposefully leave any "room for improvement", just to make a startup more attractive to buyers who have some experience with ads and SEO. I'd prefer to do the best job I possibly can, and I'm sure people would be still interested in buying, as long as you have the customers and revenue.

charlesdm 9y ago
Maybe he just preferred having a healthy amount of money in the bank, and the multiple was worth it? Having $500k - 1m brings decent peace of mind, even if it was a nice business.
- imhoguy 9y ago
  Exactly as author mentions the risks and the focus in the article. Future, especially in IT and ecommerce, is unknown and next month some mamoth competitor or smart copycat can step into his market.
cultvoid 9y ago
In my experience, hiring a marketing/adwords contractor is the very easiest way to transfer cash out of your business and into somebody else's business, with no discernible value gained. I'm sure there are some hotshot marketing/adwords contractors out there...and unicorns probably exist also.
- ProblemFactory 9y ago
  The "problem" with SEO and adwords consultants is that the good ones would be working for the most lucrative verticals: insurance, consumer finance, medical lawsuits, etc. If your small SaaS business can afford to hire them, then they aren't worth hiring.

deleted 9y ago

[deleted]

tylertringas 9y ago

Hi folks. I'm the OP here. Hit me up if you have any questions.

tarr11 9y ago
Thank you for sharing this. Can you answer how much you sold it for, and what your SDI actually was at the time of sale?
- tylertringas 9y ago
  Sorry I can't, per the terms of the deal. The buyer actually made a very good argument for why. Essentially there is so little data out there that if I posted some rough deal terms it would dominate all future discussions they had "but you paid X for Storemapper and we're at least as Y" but they still wouldn't have the full context of the transaction. So that single data point would be both misleading and unhelpful for future acquisition discussions, which I think is pretty reasonable.
zinxq 9y ago
Can you give an idea of the multiples of X (i.e. revenue, Ebitda, etc) that you did consider? You mentioned 6x(monthly-revenue) was bad. But can you discuss the spectrum of what looked good/interesting? (not asking $$$ .. just multiples that were presented)
- tylertringas 9y ago
  Can't talk about my deal (see below). At the time I started discussions (early 2017) I had SaaS brokers tell me the "market rate" for SaaS was about 3-3.5x annual SDE (see post for discussion of what SDE is).
  - areskib 9y ago
    Thanks, any brokers you can recommend?

bryanph_ 9y ago

Shows how out of touch I am with the corporate world. I can't believe people pay monthly for this.

tylertringas 9y ago
I know right. Big thanks to patio11 for convincing me (via blog posts and tweets) that, yes, many businesses will pay quite a bit more than you think for things like a store locator
- phlowbieuq 9y ago
  Is it just me, or is patio11 the most widely helpful and valuable person on the entire internet? Can hardly make it through a long HN thread without finding some reference to "patio11 wrote a great post on this topic that helped me immensely"
- patio11 9y ago
  Thanks! That made my day. (I would have liked it regardless of the context but particularly nice to hear in the context of helping a business to a materially successful outcome.)
  - webbie917 9y ago
    It's time you wrote a book (aka package your popular blog posts into an ebook) Patrick and made people pay $$ for your advice :-)
tobltobs 9y ago
What would be the alternative if you can't implement it yourself? Pay a developer a hefty one time sum? And then probably all few years another developer again to update it? Thereby getting a product which isn't as feature rich as the Saas version? And probably increase the required administration effort for your website hosting. Doesn't sound like a good alternative, especially if you are an startup which might be not around next year anymore.
9y ago

deleted 9y ago

[deleted]

matrix 9y ago

Excellent and very informative post. I'd love to see the things SureSwift needed for due diligence and their hand-over list - it would be a good checklist of things you need to have squared away to ensure a smooth transaction.

top256 9y ago

imho this article is a good illustration of how business get bought and not sold. The business has to be able to live on its own and be interesting to be bought. But that means you have less reason to sell

webbie917 9y ago
Whew... I can think of a long list of reasons to sell a business. Many sell simply because of life events - wanting to spend more time with family, travel, buy a new house, deal with personal health. Running a small business is a 24/7/365 job and you can't just take a month off because you have got a honeymoon or a newborn in the plans. Accounting (consult your own accountant please0: when you make salary/profit from your small biz you get taxed at ordinary tax rate (up to 40% in the US) where is when you sell biz as assets you may be taxed at capital gain tax rate (0%-20%) which is a financial advantage - like you get paid 3-4 years ahead. Again, consult a professional on this. You could have other ideas or projects you want to work on, but unable to because your business is your 100% priority and has been for too long. You might not want to deal with hiring a team because that's the stage your business is at - too big for you to handle on your own or you don't want to work 60-hour weeks anymore. I could just go on and on, but a combo of 2-3 of these will certainly make the thought of selling quite appealing to many.

hyperpallium 9y ago

I wanted to keep my first business as a life-style business, to fund other ventures, because the income is financially a much better deal than a sale... but also found that it just takes too much to run miltiple ventures (Elon Musk notwithstanding). Really liked the "see an opportunity", of the business being worth more owned by them - the sale creates value in the world. Really, it's how a sale of anything, product/service, should be. Unfortunately, getting a business into a saleable state, and getting a sale actually done, seem about as much work as creating a profitable (but not self-running) business in the first place. Conceptually analogous to Brooks' program vs. product. > In a strategic acquisition, businesses can be purchased Typo/something missing after that?

ymow 9y ago

ㄚ啊呀呀呀啊艾呀呀呀呀·7唉啊啊啊啊啊愛阿雜玩偶愛啊L唉啊L歐啊歐啊7偶恩愛阿歐恩也歐恩唉啊因為歐恩澤L唉啊歐恩愛阿雜阿歐啊阿L9唉啊偶有欸欸誒eds喔以LKkOL喔餓啊鞥奧阿要唉呀&歐唉啊7欸阿也…

ymow 9y ago

請ㄚ

scoot 9y ago

I'm kinda wowed that something so rudimentary (the map doesn't even have clustering FFS!) can generate a "life changing" income. Developed during a single flight? It shows. So the real question is, why the $$$$$ valuation?!